KUALA LUMPUR: Malaysia-based aircraft components manufacturers have seen limited reduction in orders from the original equipment manufacturers (OEMs), particularly Airbus and Boeing despite the raging Covid-19 pandemic, which halted almost 80 per cent of the global airlines operations.
Malaysia Aerospace Industry Association (MAIA) president Naguib Mohd Nor said most of the aircraft components orders had been made seven years in advanced by OEMs.
"Malaysia manufactures about 60 per cent components for single-aisle aircraft. We hope for a speedy recovery as the short-to-medium haul travels are expected to recover in the Southeast Asian region," he said at a virtual conference on the global pandemic impact on Malaysia's aerospace industry here today.
Naguib said airlines would likely restart their short-to-medium travel, thus creating demand for narrow-body aircraft to spearhead the air travel recovery.
"The aerospace is a complex industry. Covid-19 has brought critical decisions and disrupted the supply chain and manufacturing activities.
"OEMs began to evolve and innovate their products to weather the impact while facilitating airlines to expedite travel recovery in particular for business travel in the region," he said.
However, Naguib said manufacturers locally had been experiencing a 40 per cent reduction in aircraft structural and system components delivery, beginning in mid-March, 2020 due to the imposition of the Movement Control Order (MCO) and global lockdowns.
Citing an example, he said Malaysia had supplied components for 60 to 65 aircraft per month before the pandemic based on Airbus delivery schedule.
However, the delivery had been reduced between 35 and 40 per month aircraft during the pandemic last year.
"Now, things have begun to recover since the end of 2020 as the aircraft components delivery has slowly been increasing," he said.
Naguib reckoned 2021 would be a more challenging year compared to 2020 for the local aerospace industry due to uncertainty brought upon by the pandemic.
"We hope the infection rate can be well-contained, followed by the government's vaccination programme to improve the overall industry."
He said a lower production rate had a multiplier impact on the supply chain with the issue related to orders of raw materials.
"The production line was halted as the products (raw materials) could not get out from the cargo or stuck at the port."
Additionally, he said the production rate and manufacturers' revenue were hampered by low delivery as some players needed to keep their inventories (semi-finish components) in warehouses, thus increasing their cost for storage and logistics.
Naguib said this had prompted OEMs to look at various options in diversifying their supply chain to lower risks of having delayed manufacturing activities to fulfil their customers' orders.
On the outlook for the local aerospace, he said recovery could start in 2022 onwards and might return to the 2019 levels, supported by the return of air travel and gradual increase in production rate by OEMs in the US and Europe.
Sobie Aviation consultant and independent analyst Brendan Sobie concurred that 2022 would likely be the year of recovery but the government should figure out the new protocol to facilitate air travel even once the country's population were mostly vaccinated.
"The outlook for the first-quarter of 2021 is bleak and revenues for Malaysian carriers will be around the second-quarter (Q2) of 2020 levels, erasing the improvement from the second-half of 2020.
Although the focus now is to contain the virus followed by vaccination, Sobie urged the government to stimulate domestic tourism, while facilitating hotels and restaurants as well as airlines to resume domestic flights.
"Domestic market conditions should improve again the Q2 this year but domestic revenues will not be sufficient to support an overall recovery and an international recovery is not likely to start until late 2021 at the earliest," he said.
Pricewaterhouse Coopers (PwC) Malaysia's strategy and partner Edward Clayton said wide-body capacity or aircraft with four-engined could be taken out from the market in the future.
"We will see smaller aircraft with less capacity, and higher airfares," he cautioned.
Clayton said there could be shifting of airline fleets and networks with the optimal route-development and incentive strategy for the new incoming capacity.